|Bb Week11 (04-25-2022) - BUS205- x MindTap - Cengage Learning * *Course Hero * + X C & https:/g.cengage.com/staticb/ui/evo/index.html?deploymentld=59440722375013485425961657319&eISBN=9781337403047&id=1440587129&nbl... A G .. ? Nicole v CENGAGE | MINDTAP Q. Search this course My Home Ch 11: End-of-Chapter Problems - Stock Valuation X Courses Back to Assignment Catalog and Study Tools Attempts Average / 10 A-Z 3. Problem 11-03 Rental Options College Success Tips eBook Problem 11-03 Career Success Tips An investor with a required return of 15 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: RECOMMENDED FOR YOU Firm A B C Current earning $2.10 $2.90 $7.30 Study Tools Current dividend $0.90 $4.00 $7.80 Expected annual growth rate in 89% 3% -3% dividends and earnings $ 18 $ 41 $ 47 Study Tools for Introductory Current market price Corporate Finance a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent. . . . . Stock A: $ ? Help Stock B: $ Stock C: $ Give Feedback b. If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places. O % c. If the appropriate P/E ratio is 15, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ If the appropriate P/E ratio is 4, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent. Stock A: $ Stock B: $ Stock C: $ 58 . F OLDBOCHE 8:25 PM 5/1/2022 25 Mostly cloudy|Bb Week11 (04-25-2022) - BUS205- x MindTap - Cengage Learning * *Course Hero * + X C & https:/g.cengage.com/staticb/ui/evo/index.html?deploymentld=59440722375013485425961657319&eISBN=9781337403047&id=1440587129&nbl... A G .. Nicole v CENGAGE | MINDTAP Q. Search this course ? My Home Ch 11: End-of-Chapter Problems - Stock Valuation X Courses Back to Assignment Catalog and Study Tools Attempts Average / 3 9. Problem 11-09 A-Z Rental Options College Success Tips eBook Problem 11-09 Career Success Tips The dividend-growth model, RECOMMENDED FOR YOU V = - Do(1 + 9) Study Tools k - g suggests that an increase in the dividend growth rate will increase the value of a stock. However, an increase in the growth may require an increase in retained earnings and a reduction in the current dividend. Thus, management may be faced with a dilemma: current dividends versus future growth. As of now, investors' required return is 10 percent. The current dividend is $0.9 a share Study Tools for Introductory and is expected to grow annually by 7 percent, so the current market price of the stock is $32.1. Management may make an investment that will increase the firm's growth rate to 8 percent, but the Corporate Finance investment will require an increase in retained earnings, so the firm's dividend must be cut to $0.5 a share. Should management make the investment and reduce the dividend? Round your answer . . . . to the nearest cent. ? Help The value of the stock |-Select- v | to $ , so the management |-Select- |make the investment and decrease the dividend. Give Feedback O Grade it Now Save & Continue Continue without saving 58 . F 25 Mostly cloudy OLDBOOZE 5/1/2022